He said carriers need to stop focusing on luring in new subscribers and instead set their sights on getting existing customers to use more of the network

AT&T's CEO recently said that carriers could no longer afford to pay subsidized prices for subscribers' new smartphone hardware.

According to a new report from CNET, AT&T CEO Randall Stephenson told an investor conference in New York City on Tuesday that subsidies for high-end smartphones must end.

More specifically, Stephenson sees smartphone market penetration at 75 percent in the U.S., and it's expected to climb to 90 percent "soon." This kind of growth, he said, means that carriers need to stop focusing on luring in new subscribers and instead set their sights on getting existing customers to use more of the network.

"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," said Stephenson. "But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that."

Before Apple's iPhone launched in 2007, wireless carriers placed their focus on bringing new subscribers in to the network. Once the iPhone was released, it was made exclusive to AT&T initially, where the carrier offered unlimited data plans through its 3G network as a way of drawing in data-hungry customers who wanted the new iDevice.

In 2010, AT&T was the first carrier to eliminate the unlimited data model and move to tiered plans instead.

Randall Stephenson [SOURCE: phonearena.com]

But the goals have changed for AT&T. Now that the iPhone and other smartphones have flooded the market, it wants to move away from subsidized pricing as a way of building customer growth and instead help customers make better use of its network.

One of the ways it has done this is through its Next plan. This allows customers to purchase a new handset with no money down and pay a monthly fee for 20 months as part of their wireless bill. After one year, the handset can be traded in for an upgrade to newer hardware. From there, a new 20-month cycle starts based on the price of the device.

"If you are a customer and you don't need to upgrade your device, you can get unlimited talk and text and access to the data network for $45 all-in," said Stephenson. "You can use your own device or finance it. I think this will be very powerful. It's where we see the market going."

Stephenson added that AT&T will be looking more toward the lower end of the market now that capacity problems have been addressed for the high end (thanks to LTE). Part of the low-end strategy is utilizing its latest purchase of Leap Wireless, a prepaid carrier that AT&T purchased for $1.2 billion back in July of this year.

"You will see us go very aggressively in the prepaid market," said Stephenson.

It seems like AT&T has been watching T-Mobile's latest "UnCarrier" moves. T-Mobile eliminated contracts for reduced cell phone plans in March and was the first to introduce an early phone upgrade program in July. Then, in October, it started offering a free unlimited international text and data plan.

More recently, T-Mobile announced Tuesday that it would be dropping down payments for Apple's new iPhone 5S and iPhone 5C handsets, as well as certain iPad models. It's a limited holiday offer, though.

Of course they won't. I would be surprised if they lower it at all. Instead if you want a phone you will have to pay full price or use the Next program to pay for it. So instead of paying $75/mo or whatever like you are now with a subsidized phone and contract you will pay $70+25/mo for the loan on your phone.

What will happen is if you leave before your phone is paid off they will demand that you return it or give them the rest of the money in a lump sum. If you choose to give it back you would, of course, have to eat whatever you've already paid them.

If anything, what they will do is offer a deal like what the cable and satellite companies do. You want new service? We will give you a discounted rate of $25/mo off the normal price if you sign a two year contract. After one year the rates will increase to their normal amount. You're under contract still so you can't leave.

The other thing I see happening if all the carriers start doing this is seeing a big drop in the sales of flagship phones. People won't be able to afford a brand new iphone every year or two when they're having to pay $600+ out of pocket. Instead you will see a big increase in sales of low-mid tier devices. Given their knack for low-cost devices I forsee a huge surge in sales for companies like Nokia that get budget phones.

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